After decade of ‘explosive growth’ for Kentucky distilleries, what’s next?

Bird’s-eye view of Woodford Reserve Distillery

Woodford Reserve got a multimillion-dollar expansion in 2014, when the company opened at least four 55,000-barrel warehouses in Woodford County on the hill overlooking the historic distillery.
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Woodford Reserve got a multimillion-dollar expansion in 2014, when the company opened at least four 55,000-barrel warehouses in Woodford County on the hill overlooking the historic distillery.
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Kentucky’s bourbon industry has seen “explosive growth” over the last decade, with much more planned for the next few years, according to a study released Wednesday by the Kentucky Distillers’ Association.

The economic impact of the industry now tops $8.6 billion, up 60 percent in 10 years years, according to the study, which was unveiled at a press conference in Frankfort.

Conducted by former University of Louisville economics professor Paul Coomes and economic consultant Barry Kornstein, the study is the fourth followup to an economic impact study originally released in 2009.

Since then, the number of distilleries in the state has jumped from 19 to 68, and the number of barrels of spirits sitting in Kentucky warehouses has ballooned from just over 5 million to more than 8 million.

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The number of jobs in the distilling industry also has doubled to more than 20,000, with payrolls of more than $1 billion.

According to the study, in the last five years more than $1.1 billion in capital spending was reported by member distilleries of the KDA (which does not include Sazerac, which owns the Buffalo Trace Distillery complex in Frankfort and the Barton Distillery in Bardstown among others) with another $1.2 billion planned over the next five years.

“Every KDA member, whether a large heritage producer or a small craft producer, reported significant investments,” according to the study. “This is by far the highest investment spending we have documented over our five studies since 2009.”

And that growth will create another 4,000 jobs and another $200,000 in payroll, according to the KDA, which is an industry lobbying group.

Association president Eric Gregory, in a news release, called the growth “a monumental success story.” He credited lawmakers for working with the industry “to remove unnecessary and artificial barriers to business.”

But he said there is more that could be done, including revising the barrel tax credit passed in 2014 that lets distilleries invest rebates of taxes paid on inventory in capital projects such as building bigger stills or adding more warehouses.

“It was a key spark in igniting our revolution and record investment. In fact, it’s worked too well,” Gregory said in the release. With expanded production and more barrels aging, barrel taxes are outpacing the corporate income tax that distillers can recoup.

“Distillers can’t realize the full benefit of the barrel credit, which means less money they can reinvest for future growth,” Gregory said. “We should not have a tax structure that penalizes increased production and investment. The barrel credit needs to be refundable or transferable.”

The bourbon boom shows no signs of slowing down, with Kentucky distillers shipping more than $452 million of product, mostly whiskey, abroad in 2017, the study says.

Gov. Matt Bevin, in a statement, also hailed the growth: “The Commonwealth has a long, proud history of distilling, and the economic impact made by our bourbon and spirits producers is recognized at national and international levels. As a signature industry, Kentucky embraces with open arms any business looking to build on the growing moment of the bourbon industry.”

Tourism at Kentucky distilleries also has been booming, with visits to KDA Kentucky Bourbon Trail and Craft Tour distilleries almost quadrupling to 1.4 million.

The study does not measure the impact of retaliatory tariffs on whiskey exports imposed last year in Europe, China, Canada, Mexico and Turkey.

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While the number of distilleries has increased dramatically, most of the whiskey comes from familiar major names, including Beam Suntory’s Jim Beam and Maker’s Mark, Brown-Forman, Heaven Hill, Four Roses, Sazerac and Barton and Wild Turkey. But new production facilities from Diageo, Bardstown Bourbon Company, Lux Row, Michter’s, O.Z. Tyler and Louisville Distilling Company have added significant capacity.

Collectively, Kentucky distillers purchased about 16 million bushels of corn and 5.6 million bushels of other grains in 2017, according to the study. About 9 million of those bushels of corn came from Kentucky farmers, with less than 1 million bushels of other grains, according to the study.

Distillers also contribute significant amounts of tax revenue, according to the study. About $235 million in state and local taxes are paid in Kentucky annually, almost double the amount .